{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-due-diligence-must-a-lender-perform-regarding-the-seller-s-existing-debt-and-liabilit","api_url":"https://dealroom.so/api/public/questions/what-due-diligence-must-a-lender-perform-regarding-the-seller-s-existing-debt-and-liabilit","question":"What due diligence must a lender perform regarding the seller's existing debt and liabilities in a 7(a) business acquisition?","topic":"Change-of-ownership underwriting","audience":"lender","bot_mode":"lender","short_answer":"Lenders must conduct thorough due diligence on all of the seller's existing debt and liabilities, including obtaining payoff letters for all debt being refinanced or assumed, and verifying that all liens on assets are released or properly subordinated. This ensures a clear transfer of assets.","rule":"For a 7(a) business acquisition, the lender is responsible for verifying all existing debts and liabilities of the seller's business. This includes reviewing financial statements, tax returns, and obtaining UCC searches to identify all creditors and liens. For debts being paid off, certified payoff letters from creditors are required. For debts not being paid off (e.g., seller notes or existing real estate debt that will remain), proper subordination or assumption agreements must be executed to ensure the SBA's lien priority.","example":"During underwriting for a $1.2M business acquisition, a lender identifies an existing $100,000 line of credit and $50,000 in equipment leases on the seller's balance sheet. The lender obtains payoff letters for the line of credit and verifies the equipment leases will be either paid off or formally assumed and properly subordinated, with UCC filings released, prior to closing.","what_lenders_check":"Failure to identify and properly address all of the seller's existing debts and liens can lead to unexpected liabilities for the borrower, impair collateral, or jeopardize the SBA's lien position, resulting in guaranty repair or denial.","required_facts":["Seller's existing debt","Due diligence","Payoff letters","Lien releases","Subordination agreements"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"How does a lender evaluate the reasonableness of a business purchase price when the seller note is fully subordinated?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-reasonableness-of-a-business-purchase-price-when-the-seller"},{"question":"What are the specific requirements for valuing inventory and equipment in a business acquisition for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-valuing-inventory-and-equipment-in-a-business-acqui"},{"question":"When is an independent business appraisal mandatory for a 7(a) loan financing a business acquisition with a purchase price over $500,000?","url":"https://dealroom.so/for-lenders/questions/when-is-an-independent-business-appraisal-mandatory-for-a-7-a-loan-financing-a-business-ac"},{"question":"How does the SBA view a change of ownership where the new owner has no prior industry experience?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-view-a-change-of-ownership-where-the-new-owner-has-no-prior-industry-expe"},{"question":"Is an independent business appraisal required for a 7(a) loan financing a business acquisition with a purchase price exactly $500,000?","url":"https://dealroom.so/for-lenders/questions/is-an-independent-business-appraisal-required-for-a-7-a-loan-financing-a-business-acquisit"},{"question":"When must a lender require an independent business valuation for a change of ownership 7(a) loan, and what are the specific thresholds?","url":"https://dealroom.so/for-lenders/questions/when-must-a-lender-require-an-independent-business-valuation-for-a-change-of-ownership-7-a"}],"related_terms":[{"term":"Inadequate due diligence","url":"https://dealroom.so/glossary/inadequate-due-diligence"},{"term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"term":"Existing Liabilities","url":"https://dealroom.so/glossary/existing-liabilities"},{"term":"seller liabilities","url":"https://dealroom.so/glossary/seller-liabilities"},{"term":"Operational due diligence","url":"https://dealroom.so/glossary/operational-due-diligence"},{"term":"Legal due diligence","url":"https://dealroom.so/glossary/legal-due-diligence"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/what-due-diligence-must-a-lender-perform-regarding-the-seller-s-existing-debt-and-liabilit","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}